“The latest case involved Nestle, who offer a range of milkshake drink powders in chocolate, strawberry and banana flavours – and they zero-rated all three flavours for VAT purposes.
“HMRC agreed the chocolate flavoured powder should be a zero-rated product due to its cocoa base – cocoa products are zero-rated – but they disagreed about the strawberry and banana versions.
“They said Nestle should be charging standard-rate VAT at 20% on both, and even though Nestle argued their case at a tribunal, the company ultimately lost. They then had to pay a hefty £4 million VAT bill from HMRC.”
Francesca said as a result of the case, milkshake fans could see the price of their strawberry and banana favourites increase by 20% if Nestle decide to pass the tax costs on to their customers.
And it’s not just milkshakes that have created strange situations when it comes to VAT.
“There have been a whole host of challenging tax decisions involving some of our favourite foods – for instance, potato crisps are taxed at the standard rate, but vegetable crisps (or crisps where the main ingredient is not potato), are zero-rated.
“Frozen yoghurt is standard-rated, but yoghurt which is frozen but is to be eaten above freezing is zero-rated.
“Orange juice has a standard tax rating because it’s a drink, but oranges themselves are zero-rated.
“And Jaffa Cakes (which if they were actually cakes would have been zero-rated), are in fact chocolate biscuits so they’re standard-rated.
“Such odd rulings may seem confusing, and if you’re unsure of the status of a product it’s vital to seek professional advice to make sure you get your VAT treatment right first time.”